Home loan hell?

Mortgages are getting harder to come by and home buyers and investors won’t be able to assume this year that they’ll automatically get approval, as has been the case for most of us in recent years.

If you don’t believe it, then listen to the words of Alan Bollard, governor of the Reserve Bank, who warned right back in March of last year that borrowing has been cheap in recent years and “at some point will revert to more normal financial conditions”. That’s exactly what’s happening now, with even lenders admitting it publicly.

There is not just one factor behind the tightening of credit. In part it’s thanks to the credit crunch in the US where lenders jumped on the bandwagon of offering Adjustable Rate Mortgages with introductory rates as low as 1% or 2%, that later reverted to a high floating rate if buyers couldn’t remortgage. Sadly many of them were overextended financially and couldn’t and the lenders were left with large numbers of defaulting borrowers.

Fortunately lenders in this country were never as irresponsible as their US counterparts. Even so, our mortgage providers here have sat up and taken notice of what has happened.

Over and above the credit crunch, a number of New Zealand finance companies, a source of mortgage money for many non-standard borrowers, have stopped lending. More than 10 have simply gone out of business, and those left that rely on debenture investments from the public are struggling to raise any money.

Sadly investors’ memories are short. We often forget what life was like at a different stage in the investment cycle. For the past few years banks and non-bank lenders have been falling over themselves to offer easy finance for house and investment property purchases.

Not so any more say commentators such as Kieran Trass property market analyst of Hybrid Group and James Lockie, general manager of Cairns Lockie, a specialist mortgage provider.

Lockie points out that it is getting more difficult to obtain finance for projects such as residential section subdivisions and spec building development. And Trass adds that even the mainstream banks are becoming more selective.

The tightening of the mortgage market won’t just affect people like me who need new mortgages this year. It affects home owners and investors indirectly as it is one of the many factors that can lead us into slump. When it gets harder to borrow money, buyers disappear and prices can fall as a result.

Have you or friends had trouble getting mortgages? What is your experience?

15 comments

Are you sure lenders in New Zealand have not been as irresponsible as their US counterparts? Perhaps not to the same degree, but I think it is likely that there are many homeowners out there who are really stretched financially as a result of "responsible" advice from lenders, and many are yet to feel the impact of higher interest rates.... Time will tell what the true situation is.

Graeme MathiesonPosted on 2/10/2008 10:59:00 a.m.

I had $25,000 saved as a deposit, no history of bad debts or bankruptcy and a stable income nearly 1.5 times the average for Auckland. I wanted to borrow 120,000 for a unit to live in and none of the standard lenders would even consider it - why ? Because the amount I wanted to borrow was too small ! They all came back with the response that I should be looking to borrow $250,000 - $350,000 and then (subject to RV) I would be approved... Three offered me pre-approval limits in those ranges. Fortunately a good mortgage broker just managed to find a sensible lender for me and I am well on the way to being debt free again in 6 years. Where is the rational sense in these lenders refusing a smaller secured debt they know I can repay but falling all over themselves to 'sell' me a higher debt amount -with a correspondingly lower percentage of the deposit ?

'Lori'Posted on 2/06/2008 3:10:00 a.m.

Purchasing power definitely seems to be going down. I lived in Europe for 12 years myself and was shocked on my return at the huge cut in income I had to take, yet I had to spend virtually the same on living.

Diana ClementPosted on 3/05/2008 1:33:00 a.m.

Purchasing power definitely seems to be going down. I lived in Europe for 12 years myself and was shocked on my return at the huge cut in income I had to take, yet I had to spend virtually the same on living.

Diana ClementPosted on 3/05/2008 1:30:00 a.m.

Purchasing power definitely seems to be going down. I lived in Europe for 12 years myself and was shocked on my return at the huge cut in income I had to take, yet I had to spend virtually the same on living.

Diana ClementPosted on 3/05/2008 1:30:00 a.m.

In the US lenders were offering a really low “introductory rate” for a year or two, then buyers reverted to the standard rate, which most couldn’t actually afford. Sub prime investors here don’t get that introductory rate, so know what to budget on from day one.

Diana ClementPosted on 3/05/2008 1:29:00 a.m.

There seems no rational sense in it. At least you did the right thing and saw a mortgage broker. The website for anyone else who is interested for the NZ Mortgage Brokers Association is: www.nzmba.co.nz. There is a find a broker search on it.

Diana ClementPosted on 3/05/2008 1:29:00 a.m.

Some people argue that any time is a good time to invest in property. Others say wait for conditions to turn. Certainly affordability goes in cycles and currently property is very unaffordable in New Zealand.

Diana ClementPosted on 3/05/2008 1:26:00 a.m.

Some people argue that any time is a good time to invest in property. Others say wait for conditions to turn. Certainly affordability goes in cycles and currently property is very unaffordable in New Zealand.

Diana ClementPosted on 3/05/2008 1:26:00 a.m.

Some people argue that any time is a good time to invest in property. Others say wait for conditions to turn. Certainly affordability goes in cycles and currently property is very unaffordable in New Zealand.

Diana ClementPosted on 3/05/2008 1:24:00 a.m.

I’m not quite sure what you want me to answer. But a very good posting indeed. Questions that we all need to think about. There are some basic investing rules that are repeated over and over again. Check out this link for a random selection of investing rules. http://tinyurl.com/39d6yn I wrote my own article on this subject in the Herald last week: http://tinyurl.com/2rjeqv

Diana ClementPosted on 3/05/2008 1:23:00 a.m.

Aaah, mortgages! I have one, in fact have had part or all of one for the last 30 years. I seem to recall having interest rates at 22% or more at one time - too scary at the time to remember now. For the last 10 years it has taken well over a third of my income. I am not complaining, that is just how it is.
Now for the first time in my nearly 60 years I have a sum of cash to take care of and, as a result, have been reading as much as I can so that a) the capital grows so that I can clear the mortgage and b) I don't become one of those I have scoffed at in the past for believing they could make lots only to lose most or all of their funds. (Or more unfortunately those who believed the headline suggestions for money management, took advice and still lost the lot).
My estimates (with the help of various ingenious website calculators) tell me that, with careful management, I can be mortgage free within two years - coincidentally the length of time my current interest rate will hold. Lucky me, good timing, may not have to pay 10%+.
So now the questions start running into each other. Am I being careful enough? Or doing the best I can with my little nest egg? Have I missed a vital calculation or hidden cost? Will the tax man jump out and get me? Is there something in the small print that I haven't noticed? If I sign this piece of paper, have I stuffed up my chances of a reasonably comfortable older age? What is likely to happen in the money world that the insiders know and I don't? How tied are the major banks with the USA debacle in subsomething mortgages? Are the two (I think there are only two) NZ owned banks tied up there too? Are any Finance Companies reliable? Who do I believe?
This article states 'those (finance companies)left that rely on debenture investments from the public are struggling to raise any money'. Whoa - which ones are these, and how can I find out? And does it matter to the health of the Finance Company?
Recently, several financial institutions have met their demise, and after the event experts said the 'writing was on the wall for all to see'. Where is the wall, who has done the writing and why didn't they write it big enough, in clear and unambiguous script and at eye level so that the not so financially savvy (me and my ilk) could see and understand? I suspect it is deliberately where our failing eyesight will miss it.
And how about 'investors' memories are short'? Not short, some have never been in a position to invest in anything except the children who have now left home, fed, clothed, educated and hopefully well on their way to looking after themselves.
You think I might be talking hundreds of thousands? Nope. How to deal with my small tens of thousands is giving me more sleepless nights than how to pay the powerdbill AND feed five kids AND plan for Christmas AND get the biological contributor out of the pub ever did.
Now I feel better - not confident - but better.

margaretPosted on 3/03/2008 10:11:00 a.m.

Wait and watch the market - keep saving for a while longer.
I'm sitting pretty at the moment I brought in Nov 2001 houses where selling well under the GV's, it was a buyers market and the interest rates where under 8% fixed for 5 years. My replayments have never been over $175pw which is way under rent I'd was paying.
Last year I watched the rates start to climb and listened to Alan Bollards predictions on the OCR and decided to refinance and fix again for 5 years at 7.7% in Oct last year, so glad I did, I'm set till 2012 with very manageable prepayments.
I'm saving while the market and interest rates are so unbalanced and I'll wait until the interest rates come back down again (and they will) to see if I can get an investment rental when prices become a bit more realistic.
It's becoming a buyers market again but people are still over estimating their houses value. It will cause a slow down and things will improve for new home buyers.
I currently have $180,000 equity in my property but in todays market I wouldn't take the risk to borrow to get another property. The repayments are just not manageable.
If you can - just keep saving and wait a while.

LeePosted on 16/02/2008 1:08:00 a.m.

Despite wihful thinking by real estate agents, house prices are falling and will continue to fall for the next year or two. A lot of greedy property investors are starting to realize they weren't so smart after all. Even the sharemarket looks dicey for the short to medium term. Cash is king again!

BarryPosted on 16/01/2008 11:32:00 a.m.

The higher intrest rates for mortgages, combined with the increase of basic food items as well as the increase of rates etc. result in a big loss of purchasing power. This has been going on for the last years. Result is that New Zealand becomes unaffordable to live in. It also has a negative affect on the crime rate.
One of my three children have already moved to Europe, the next one puts his house on the matket and leaves for Europe as well.

ChristienPosted on 14/01/2008 1:31:00 a.m.

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